Investors cannot get enough of top fund manager Neil Woodford, so you can’t blame him for offering them more. The dividend specialist has just announced that he will be sending a survey to private investors, platforms and intermediaries asking if they might be interested if he launched a new high income fund. If the answer is yes, the new vehicle will launch later this year.
Some candy talking
This sounds more like a vanity exercise than a piece of research, because you, I and Mr Woodford all know the answer is likely to be a resounding YES PLEASE. His eponymous CF Woodford Equity Income fund attracted record inflows of £1.6bn at launch exactly two years ago and was worth a stonking £6.2bn within a year, due to further inflows and strong first-year growth. Today it is worth £9bn. Do private and institutional investors want more Woodford? This is like asking babies if they want more candy.
The new fund will target annual income of 4.5% a year and if it succeeds it will be more generous than the 3.56% currently paid by CF Woodford Equity Income. There is no guarantee that it will generate such a high yield: his current fund is falling short of its 4% target although that is partly because the sharp rise in its assets have knocked the yield. Nobody is complaining about that with the fund up 18.66% since launch, despite volatile markets.
Just like honey
Woodford ran both an Income and a High Income fund at Invesco-Perpetual, and by the end of his 25-year tenure it was hard to tell the difference between the two. Both were raging successes, with total returns of 196% and 199% respectively in the 10 years before he moved on, according to figures from AXA.
The new fund when (sorry, if) it is launched will have no geographic constraints, whereas CF Woodford Equity Income is 82% invested in UK equities. This will give investors exposure to the growing market for global dividends and supply some portfolio diversification, although UK equities will still form the bulk of the fund.
Head on
The proposed new vehicle will only invest in quoted companies, whereas his current fund has invested 7.5% in unlisted funds, and can invest a maximum 10%. This may limit its capital growth potential, with the fund 85% invested in dividend-paying companies. So the differences between the funds may be greater than between Invesco-Perpetual Income and High Income, with investors potentially sacrificing a bit of growth to get that yield.
Not everything Woodford touches turns to instant gold. His other fund, Patient Capital Trust, which invests in “exciting, disruptive early-stage and early-growth companies”, alongside high conviction mid and large cap ideas, is down 15% in its first year. Do not read too much into that: this fund is volatile by nature and performance has picked up lately, rising 9% in three months.
Many investors will decide they already have a perfectly good Neil Woodford equity income fund at their disposal, and do not need another. Others won’t be able to help themselves. Go on, you know you want to.